Market Pulse: Weathering the Markets: Diversification and Discipline in Action

The past few years have tested investors with inflation spikes, rising interest rates, bouts of market volatility, and shifting global dynamics. Truly an environment that demands a forward-looking approach to capturing opportunity and managing risk.

At Highland, we don’t chase headlines or try to predict short-term swings. But when the evidence supports action, we move decisively. As we approach year-end, we reflect on recent decisions and how our disciplined approach continues to help clients preserve and grow their wealth.

Diversification When It Matters

Diversification is like packing sunglasses along with the raincoat. As any Pacific Northwesterner knows, like the weather, markets can change rapidly. That’s why we maintain a global investment approach, inclusive of a wide range of assets, to help portfolios stay resilient no matter the conditions.

2025 has been a case study in how quickly markets can shift. For several years, U.S. equities outperformed international markets, leading many investors to abandon global diversification. This year, the tables have turned as international stocks have meaningfully outpaced U.S. markets which have been a key driver of client returns.  

Similarly, the U.S. dollar has been volatile and experienced material weakness. Shifting U.S. fiscal and monetary policies have added uncertainty. Our recommendation to hold non-dollar investments such as emerging market bonds and gold – which historically perform well during periods of inflation and uncertainty – has been highly accretive.

While diversification often means that some areas of a portfolio work harder than others, the goal is long-term resilience. Our continued preference for quality U.S. companies with strong balance sheets and growing dividends hasn’t kept pace recently with the S&P 500, a benchmark increasingly dominated by a handful of mega-cap technology stocks. Yet we maintain conviction in this positioning. Quality leadership tends to prove its worth over a full market cycle and we expect these companies will eventually have their day.

These exposures aren’t accidental. They’re intentional decisions by Highland’s investment team to broaden opportunity and reduce risk. A hallmark of our process for over 26 years.

A Purposeful Approach

As we noted in our recent Market Pulse (“Unlocking Investment Success: The Power of Simplicity, Fees, and Tax Efficiency”), a purposeful process matters, especially in managing risk and minimizing taxes.

April of this year provided a perfect example. As stocks fell 17%, their steepest decline in three years, our dual focus on strategic rebalancing and systematic tax management added tangible value. Clients benefitted from realizing tax losses (creating future tax assets) while repositioning portfolios by selling conservative bonds and reinvesting in depressed equities. Since those April lows, stocks have rallied an amazing 37%.

Just as we did in April, now that stocks have risen sharply, we are actively rebalancing again to lock in some of these wins and to manage risk by rebalancing back to targets. A simple, purposeful, and proven process, yet tremendously valuable in market environments like these.

Looking Ahead

As we look ahead to 2026, Highland’s investment philosophy remains the same – disciplined, thoughtful, and relentlessly focused on helping our clients achieve lasting success. At the same time, our expanding partnership with Hightower is allowing us to uncover fresh ideas, develop new ways to diversify portfolios, and uncover differentiated sources of return to meet the next market cycle with confidence. We look forward to sharing these opportunities with you in upcoming conversations and in future Market Pulse insights.